Top Chip Stocks To Watch As They Kickoff Q3 Earnings
The semiconductor sector has been on fire in 2020. The pandemic forced rapid digitalization into every corner of the economy, as the world adapts to the "stay at home" initiative. The robust digital tailwind boosted the stocks that make up the backbone of technology, aka digital chips.
iShares semiconductor tracking ETF (SOXX), whose top holdings include chip giants like Broadcom (AVGO), Texas Instruments (TXN), Qualcomm (QCOM), Nvidia (NVDA), and Intel (INTC), has driven more than 28% returns for investors since the beginning of the year. This represents an alpha of more than 20% above the broader S&P 500 index.
Earnings to Watch
Now the chip sector's outsized returns will be put to the test as Q3 earnings commence. We have an exciting line up of first-class semiconductor businesses releasing earnings over the next week. Below is a timeline of key chip earnings to focus on.
The largest and most connected semiconductor giant is set to release its September quarter earnings tomorrow morning (Oct. 15th). This will set the tone for the chip's price action this earnings season. TSMC is Silicon Valley's go-to semiconductor manufacturer because of its enormous scale and cutting-edge expertise that competitors can't match. Today, the company controls 56% of the global foundry (chip manufacturing) market, which continues to grow as TSMC eviscerates its competition.
TSMC's figures tomorrow with allow us to assess the performance of the different chip niches. I expect that 5G related technology will illustrate a summer boost along with high-performance computing (HPC) as data center hyperscaling comes back into play with the accelerating cloud-computing, automation, and AI markets.
For more color on TSMC and two other chip leaders, check out my recent articles: 3 Chip Stocks That Are Changing The World
Cadence Design Systems (CDNS)
Cadence and its chip design duopoly partner Synopsys (SNPS) have boomed in 2020 thus far, nearly perfectly tracking each other and driving returns of 64% and 59%, respectively. You can see both of their relative performance below.
These two enterprises help with the chip design process, providing chip developers with the proper software and IP to develop the next big innovations.
CDNS's massive gains will be put to the test when it reports its September quarter earnings next Monday. The performance of these two companies provides us with insight into the level of innovation-focused investments. Growing investments in R&D and IP illustrates that this space is accelerating.
XLNX is a stock that has made the front page in recent days with rumors spreading about a potential acquisition by AMD (AMD). This strategic acquisition would help the combined enterprise better penetrate the data center market. AMD's claim to fame is its more "affordable" CPU/GPU chips. These chips are becoming best-in-class as the company keeps itself ahead of the innovative curve.
Still, AMD has yet to break into the massive data center market like its top competitors. Acquiring Xilinx will better equip the enterprise for competition in this space. This potential deal's price may be altered by XLNX's quarterly report, which is expected to be released next Wednesday (October 21st) alongside Lam Research (LRCX) and Ericsson (ERIC).
The company that pioneered the earliest chip technology has been digging itself a grave of obsolescence in recent years, and now it needs to dig itself out. Intel used to be the biggest & baddest chip company on the block, but its recent missteps have pushed this once caption of innovation out of the chip limelight.
Intel has disappointed me in recent years, with supply chain issues and production delays that have pushed the chip king out of step with the innovative curve. The previously viewed "value" CPU player, AMD (AMD), is now taking market share in space that Intel has been building for decades.
We will find out if Intel has made moves this past quarter to get back on track in its earning release next Thursday (October 22nd).
Zacks Consensus Estimates
The world of chips is just beginning to heat up as the 4th Industrial Revolution begins. The opportunity in semiconductors remains ripe for the technological explosion that is initiating the Roaring 20s.
Full economic recovery is far from achieved, and uncertainty about the future remains high. Don't forget to focus on forward guidance and sentiment from management this earnings season as it will be a pivotal catalyzer to this sector's price action going through the next week.
Have You Seen Zacks’ 2020 Election Stock Report?
The upcoming election could be a massive buying opportunity for savvy investors. Trillions of dollars will shift into new market sectors after the election. The question is, which sectors will soar for each candidate? Zacks has put together a new special report to help readers like you target big profits.
The 2020 Election Stock Report reveals specific stocks you’ll want to own immediately after the results are announced – 6 if Trump wins, 6 if Biden wins. Past election reports have led investors to gains of +71%, +83%, even +185% in the following months. This year’s picks could be even more lucrative.
Check out Zacks’ 2020 Election Stock Report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Xilinx, Inc. (XLNX): Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM): Free Stock Analysis Report
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
Synopsys, Inc. (SNPS): Free Stock Analysis Report
QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Lam Research Corporation (LRCX): Free Stock Analysis Report
Intel Corporation (INTC): Free Stock Analysis Report
Ericsson (ERIC): Free Stock Analysis Report
Cadence Design Systems, Inc. (CDNS): Free Stock Analysis Report
Broadcom Inc. (AVGO): Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.